Five years ago, Vanguard’s record-keeping business begantargeting small plans with the launch of Vanguard Retirement PlanAccess, a unit established to provide specific services andplatforms for start-up plans and established 401(k)s with up to $20 million in assets.

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Since then, growth in the VRPA unit has been explosive.

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In 2012, the unit serviced 445 plans and 16,446 total individualaccounts. The average plan account value was $1.9 million, puttingtotal assets in the $846 million range.

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As of the end of last year, Vanguard was the service providerfor 6,506 plans on its VPRA platform, with 273,045 total individualaccounts. The average plan account value was $2.3 million, puttingtotal assets in the $15 billion range.

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According to Vanguard’s Small Business Edition of the firm’s2017 How America Saves report, small plans arebenefiting from many of the plan design trends driving the largeplan market.

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The increasing utilization and influence of advisors catering to the small plan market isdriving those trends.

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“Many small business owners are partnering with advisors to helpnavigate and manage the complexities of their 401(k) plan andaccompanying fiduciary responsibilities,” said Crystal HardieLangston, principal and head of VRPA, in a statement.

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“In large part due to the invaluable support of advisors, we’reseeing meaningful developments in small business plan design, whichis really moving the savings dial for more working Americans,” saidHardie Langston.

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Here is a look inside VRPA’s numbers, and how small plans in theVanguard record-keeping universe stack up to trends seen with itslarge plan clients:

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Small plans are less likely to use automatic enrollment. (Photo: Getty)

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1. Start-up plans have below-average numbers

Vanguard separates two plan populations when analyzing its VRPAdata: start-up plans initiated within the past three years; andestablished plans initiated more than three years ago.

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The average VRPA plan has 42 participants. The 1,997 start-upplans average 25 plan participants and have an average of $500,000in total plan assets. The 4,509 established plans average 50 planparticipants and have an average of $3.1 million in total planassets.

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2. Small plans less likely to use automatic enrollment

Auto enrollment has been adopted at a much slower rate amongsmall plans relative to large plans serviced by Vanguard.

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Only 15 percent of VRPA plans use automatic enrollment, comparedto 45 percent of large plans that had adopted the feature by theend of 2016.

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As with large plans, the 3 percent default rate is most commonamong small plans, with 57 percent of VRPA plans using that rate;13 percent of VRPA plans automatically default participants at 6percent of income or higher; 38 percent default at 4 percent ormore; and 10 percent set the default deferral at less than 3percent of salary.

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Participation rates increase with auto-enrollment. (Photo: Getty)

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3. Participation rates increase with auto-enrollment

Participation rates remain the broadest gauge for overall plansuccess, the report says. As with large plans, participation ratesin VRPA plans dramatically increase with automatic enrollment.

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The participant-weighted average participation rate, which takesthe percentage of all eligible employees in the VRPA universe, is82 percent in plans with auto-enrollment, compared to 57 percent inplans without it.

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4. Income affects participation

Only 39 percent of eligible employees making less than $30,000 ayear participated in their employer plan, compared to 85 percent ofemployees making more than $100,000, underscoring a key reality inthe ongoing consideration of the nation’s overall retirementprospects—that lower earners simply don’t make enough disposableincome to save in defined contribution plans.

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Auto-enrollment improves savings habits of low earners. (Photo: Getty)

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5. Auto-enrollment vastly improves saving habits of lowearners

Nonetheless, automatic enrollment vastly improves the savinghabits of lower-wage earners in the VRPA universe. For those makingless than $30,000, 72 percent participate in plans whenauto-enrolled, compared to just 33 percent in plans without thefeature.

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And 85 percent of eligible workers that make between $30,000 and$50,000 a year participate in plans when automatically enrolled,compared to 57 percent in plans without the feature.

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6. Account balances lower

The average account balance in the VRPA universe is $55,480,considerably lower than the average balance of $96,500 with largeplans serviced by Vanguard.

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When separating start-up plans, the average balance in the VRPAuniverse tracks somewhat closer to that seen in larger plans. Forestablished small plans, the average balance is $62,925; forstart-up plans, the average balance is $21,573.

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Deferral rates are less with auto-enrollment. (Photo: Shutterstock)

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7. Deferral rates less with auto-enrollment

Average deferral rates were 5.7 percent in plans withauto-enrollment, and higher in plans without it—7.3 percent.

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That trend—automatically enrolled participants contributing lessthan those that voluntary enroll—somewhat aligns with the trendseen in larger plans serviced by Vanguard, where the averagedeferral is 6.1 percent for plans with auto-enrollment, and 6.3percent in plans without it.

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One in five participants deferred more than 10 percent ofincome, and 12 percent deferred the statutory maximum.

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8. Employers contribute less

When accounting for employer contributions, the average savingsrate in the VRPA universe was 9.3 percent in 2016, compared to 10.9percent with larger plans.

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Small sponsors continue to favor TDFs. (Photo: Shutterstock)

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9. Small sponsors continue to warm to TDFs

Half of all contributions were directed to target-date funds in2016, compared to 33 percent in 2012. Nearly all—97 percent—ofplans that automatically enroll employees default them into aTDF.

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10. VRPA plans offer more rather than fewer investmentoptions

In 2016, the average VRPA plan offered an average of 20.2investment options to participants, compared to 27.4 in Vanguard’slarger plans.

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Few plans take a minimalist approach to menu design—only 5percent offer between six and 10 investment options, and astatistically negligible number of sponsors offer fewer than fiveinvestment options.

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